Analyst Insight: Supply chain complexity and turmoil is on the rise due to growing global markets, increasing customer expectations, rising costs and more intense competitive pressures. Progressive companies understand that supply chain performance has a significant impact on the bottom line and shareholder value, and they must reinvent their supply chain networks on a regular basis in order to remain competitive. However, the traditional way of designing supply chain networks with a focus on cost optimization is giving way to more progressive thinking. - John Spain, Executive Vice President, Tompkins International

A progressive approach to network design considers the following critical elements:

"¢ Strategy before structure (or, in this case, network design): Smart companies are realizing that the first step to any network design is to develop the right operations strategy that supports the business strategy. There is no substitute or shortcut. The operations strategy specifies how operations will meet the service needs of target markets, as well as which capabilities distinguish the business and deliver the operational requirements of the defined value proposition. The operations strategy defines the network capabilities that are necessary to realize the business strategy. The capabilities are the operational elements of infrastructure, business processes, organization, technologies, and solutions that can deliver the specified services. The operations strategy is the starting place, and from these capabilities the network design will evolve. If there is not a clearly defined operations strategy, then a valid network design process cannot be pursued.

"¢ Focus on total value maximization, not cost optimization: An increasing number of companies are asking the question, "How can my supply chain be used to create a strategic advantage that will maximize profits and my company's value?"¯ This statement is a simple recognition that cost optimization is not the dominant driver for many network design projects today. Cost optimization is important; however, creating capabilities that will drive profitable growth and maximize profits is even more important.

"¢ Network structure and capabilities impact demand: More companies than ever are realizing that the network structure (and its capabilities to provide fulfillment) affects customer service, which in turn drives demand growth. The traditional way of network design"”considering demand as independent of the network structure and its capabilities to provide service"”is obsolete. This is a game changer for network design.

"¢ Project versusongoing process: Supply chain networks are very sensitive to changes in business strategy and operating environments such as market or sourcing changes. With an environment that is increasingly dynamic, today's best supply chain networks lose their advantages faster than ever. To maintain a competitive advantage, the best companies have made network design a core business process. They are constantly tweaking and reinventing their networks, and are realizing a significant competitive advantage.

"¢ Change management is critical: Change management provides the bridge from network design to successful implementation and transition to a new network. Inadequate change management is the prime reason why redesigned networks do not operate at the levels projected during network design. Progressive companies realize the critical nature of a solid change management strategy and, as a result, they are realizing full functionality and performance are expected from the network design.

The Outlook

Supply chain complexity has recently grown exponentially, and this trend shows no sign of slowing down. Progressive companies realize the need for continuous changes to their supply chain networks in order to keep pace and remain competitive. The focus on network design is shifting from cost optimization to profit and value creation. As a result, network design has moved up the priority list of many executives, and this trend will continue into the foreseeable future.